Michael Porter’s Five Generic Strategies

Michael Porter states that strategies allow companies to gain

competitive advantage from

three different bases: cost leadership, differentiation and focus.

They are the three basic ge-

neric strategies. They can be applied to two different scopes

(market sizes), large or small, and

are completely industry independent. They can be separated into

5 different types depending

on the scope.

In terms of cost leadership, there are two different subdivisions:

low cost and best value. In

terms of a low-cost strategy (type 1) the company offers products

or services to a wide range

of customers (large scope/market) at the lowest price available. It

is especially useful when

the customers are price-sensitive and there is little ways of

obtaining differentiation.
In a best value strategy (type 2) the company offers product or
services to a wide range of customers at the best price-value
available. It is especially useful when the company has a big

customer base and wishes to build a good loyal relation with them
and influence future cus-

tomers with their good service.

In terms of a differentiation strategy (type 3) a company aims at

producing products or

services unique in its industry. It is especially useful when the

customers are price-insensitive

and a company has the ability to use its resources to produce

these products.

In terms of a focus strategy, there are also two different

subdivisions: low cost and best

value. In a low-cost focus strategy (type 4) a company offers

products or services to a small

group of customers (small scope/market) at the lowest price

available. Like type 1, it is espe-

cially useful when the customers are price-sensitive.

In a best value focus strategy (type 5) a company aims its
products at a small niche of

the market, meeting all their needs at the best price in the market.
It is especially useful when

that market niche is very demanding and don’t really care about
the price that they pay for the

products or services.

Generic Strategies used by Uber:

The generic strategy used by Uber is a mix of cost leadership and technology
based differentiation. Unlike other traditional taxi services, Uber takes a very
small cut ranging usually between 5 to 20%. It does not hire full time riders or
rides but uses the networking effect to grow its number of drivers. Anyone who
owns a vehicle and can drive can become a driver for Uber and earn money
working part time. So, this allows cost cutting on infrastructure and
maintenance. In turn this benefit can be passed to both drivers and rider which
allows Uber to charge lower costs and without incurring any financial loss. The
drivers are earning extra money and the riders are getting to pay less and have
extra convenience. This is how the cost leadership advantage is working in the
favour of Uber and has made its popular, particularly in the metropolitan areas.
Cost leadership can be a source of sustainable competitive advantage as proved
already in the case of Walmart and Costco. It works to retain the popularity of
Uber’s services high because everyone wants to save money. Moreover, by
adding convenience to the services, the brand has been able to generate higher
level of popularity and a better brand image.

Technology based differentiation is also a primary source of competitive

advantage for the brand. Technology is the main enabler of its services and plays
a central role in its business model. It is the Uber app that connects the riders
with the taxi drivers, allows them to pay for the services and rate their ride and
convenience. Before the introduction of Uber, booking a taxi ride was not as easy
and people had to pay higher while the waiting time for a taxi could also be
longer. Now, a ride can be available .within minutes after booking. You click and
the nearest available taxi responds. Customer convenience here becomes an
important differentiating factor for the brand. Since the level of convenience is
higher, .it adds quality to the service and therefore become s a source of
competitive advantage for the business. This is how the brand has used a mix of
cost leadership and differentiation to build competitive advantage
3.2.3 Porter’s model

If we talk about HBL in porter’s perspective, they are implementing “BEST-COST

PROVIDER STRATEGY”. They give their customer more value for the money they are
spending to satisfy them in a props way. They focus on innovation as well as low cost.
It is also because they believe if they facilitate their customers, ultimately will get return
in future. HBL’s products cover all the customers belonging from various classes. A
salaried person having 3 to 5000 and rich industrialist are entertained equally in HBL.

What is the First Mover Advantage?

The first-mover advantage refers to an advantage gained by a company that first introduces
a product or service to the market. The first-mover advantage allows a company to establish
strong brand recognition and product/service loyalty before other entrants.

It is important to note that the first-mover advantage only refers to a large company that moves
into a market. For example, Amazon was not the first company to sell books online. However, it
was the first company to achieve significant scale in that line of business.

Advantages of Being a First Mover

There are several advantages to being the first business to execute a strategy.

Companies that are first movers can often:

 Establish their product as the industry standard

 Be able to tap into consumers first and make a strong impression, which can lead to brand
recognition and brand loyalty.
 May be able to control resources, such as basing themselves in a strategic location, establishing a
premium contract with key suppliers, or hiring talented employees.
 Can gain an advantage when there is a high switching cost for consumers to switch to later
entrants.

Technology leadership
First movers can make their technology/product/services harder for later entrants to replicate. For
example, if the first mover can reduce the costs of producing a product (an “experience” curve
effect), the first mover can establish an absolute cost advantage. In addition, applying for patents
can protect and establish a first-mover advantage.
2. Control of resources
The second benefit is the ability to control strategic and/or scarce resources. For example, Wal-
Mart was able to locate its stores in small towns and prevent others from entering the market.

3. Buyer-switching costs
The third benefit that first movers may enjoy is buyer-switching costs. If the first business is able
to establish itself first, it may seem inconvenient for consumers to switch to a new brand.

Uber was founded in 2008, and it firstly introduced the concept of peer-to-peer
business model in taxicab industry. Since then Uber has become the first
mover in ridesharing industry. In the following years, there are several start-
ups who have a quite similar concept to Uber established across the world;
e.g. Ola Cabs 2010 (India), GrabTaxi in 2011 (South-East Asia), Lyft in 2012
(United States), and Didi Kuaidi in 2015 (China).

Nowadays It can be seen that Uber enjoys strong first mover

advantages according to the theory by Lieberman and Montgomery (1988).
The six-year-old start-up has continued to be the leader of ridesharing market
as its valued 40 billion dollars in 2014 (Isaac, 2014). Network effects allow
Uber to grow bigger, on the other hand, put small companies in danger, as
customers tend to choose those with the most providers. However, it is
argued that switching benefits are higher than costs as ridesharing companies
are offering high incentives to attract customers and drivers. Throwing money
benefits customers, however, it shows less chance for companies to
differentiate in terms of technology and services (Bercovici, 2014).